All posts tagged Lehman Brothers

Keynesian economists have been vociferous during and since the financial crisis, arguing that government stimulus is necessary to lift economies out of recession. The duration of the downturn and the anemic nature of the recovery have been blamed on too little stimulus.

But more than three years after the Lehman Brothers’ bankruptcy, can economic doldrums really be blamed on insufficient fiscal stimulus, especially when major developed countries are running the biggest deficits ever outside of the Second World War?

The economist Scott Sumner points out that if deficit spending was sufficient to lift an economy the U.K.’s should be a world beater. The U.K.’s deficit has consistently been near the top of the major country rankings for deficits as a percentage of GDP during the past four years, only routinely beaten by the U.S. and Japan.

And yet despite this heroic scale of fiscal stimulus, the U.K.’s economy was again contracting by the last quarter of last year and could well be facing a fresh, if shallow, recession. Mr. Sumner’s conclusion is that fiscal policy is an insufficient driver of the economy.